Key Terms

• A Need


  A good or service essential for living.
• A Want


  A good or service that people would like to have, but is not essential for living. People’s wants are unlimited.
• Economic Problem


  There exist unlimited wants but limited resources to produce the goods and services to satisfy those wants. This creates scarcity.
• Factos of Production


  The resources needed to produce goods or services. There are four factors of production (land, labour, capital and enterprise) and they are in limited supply.
• Scarcity


  The lack of sufficient products to fulfil the total wants of the population.
• Opportunity cost


  The next best alternative given up by choosing another item.
• Specialisation


  Occurs when people and businesses concentrate on what they are best at.
• Division Of Labour


  When the production process is split up into different tasks and each employee performs

  one of these tasks. Division of labour is a form of specialisation.
• Businesses


  Businesses combine factors of production to make products (goods and services) that satisfy people’s wants.
• Primary Sector


  The primary sector of industry extracts and uses the natural resources of the earth to

  produce raw materials used by other businesses.
• Secondary Sector


  The secondary sector of industry manufactures goods using the raw materials provided by the primary sector.
• Tertiary Sector


  The tertiary sector of industry provides services to consumers and the other sectors of industry.
• De-industrialisation


  Occurs when there is a decline in the importance of the secondary, manufacturing sector of industry in a country.
• Mixed Economy


  A mixed economy has both a private sector and a public (state) sector.
• Capital

  The money invested into a business by the owners.
• Public Sector


  Government (state) owned and controlled

  businesses and organisations.
• Entrepreneur


  A person who organises, operates and takes the risk for a new business venture.
• Business plan


  A document containing the business objectives and important details about the operations, finance and owners of the new business.
• Capital employed


  The total value of capital used in the business.
• Internal growth


  Occurs when a business expands its existing operations
• External Growth


  When a business takes over or merges with another business. It is often called integration as one business is integrated with another.
• Takeover


  When one business buys out the owners of another business, which then becomes part of the ‘predator’ business (the business which has taken it over). Also

  known as an acquisition.
• Merger


  When the owners of two businesses agree to join their businesses together to make one business.
• Horizontal integration


  When one business merges with or takes over another one in the same industry at the same stage of production.
• Vertical integration


  When one business merges with or takes over another one in the same industry but at a different stage of production. Vertical integration can be forward or backward.
• Conglomerate Integration


  When one business merges with or takes over a business in a different industry. This is also known as diversification.
• Sole Trader


  A business owned by one person.
• Limited Liability


  Limited liability means that the liability of shareholders in a company is limited to the

  amount they invested.
• Unlimited Liability


  Unlimited liability means that the owners of a business can be held responsible for the debts of the business they own. Their liability is not limited to the investment they made in the business.
• Partnership


  A form of business in which two or more people agree to jointly own a business.
• Partnership agreement


  The written, legal agreement between business partners. It is not essential for partners to have such an agreement, but it is always recommended.
• Unincorporated business


  A business that does not have a separate legal identity. Sole traders and partnerships are unincorporated businesses.
• Incorporated business


  A business that has separate legal status from its owners
• Shareholders


  The owners of a limited company.
• Private Limited Company


  A business owned by shareholders, but it cannot sell shares to the public.
• Public Limited Company


  A business owned by shareholders, but it can sell shares to the public and its shares are tradable on the stock exchange.
• Annual General Meeting (AGM) 


  A legal requirement for all companies. Shareholders may attend and vote on who they want on the Board of Directors for the coming year.
• Dividends


  Payments made to shareholders from the profits (after tax) of a company. They are the return to shareholders for investing in the company.
• Franchise


  A business based on the use of the brand names, promotional logos and trading methods of an existing successful business. The franchisee buys the licence to operate this business from the franchisor.
• Joint Venture


  When two or more businesses start a new project together, sharing capital, risks and profits.